Section 727(a)(4) of the bankruptcy code states that discharge will be denied to any debtor who “knowingly and fraudulently, in or in connection with the case… made a false oath or account…” This is a catch-all provision to prevent giving a discharge to a debtor who is dishonest to the court. Minor omissions may not matter. For instance, if a $10 watch is not disclosed, that may not be a big deal. But if a Rolex watch is not disclosed, that may become a big deal. A Rolex watch is high value costing several thousand dollars. The fact that debtor was not aware of the high value of a Rolex watch is irrelevant.
In Re Sullivan, the Chapter 7 debtor was a real estate attorney. Schedule B of his bankruptcy petition showed that he had $300 in his checking account, $500 in furniture, $500 of clothes and $19,100 in a retirement account. Debtor also owned a Chevy Chevelle listed at $9,500. He said he owned no other personal property. He said that his ex-girlfriend held a priority claim of $2,014 and an unsecured claim of $100,000. Although he said her claim was subject to litigation, he did not list it as being contingent, un-liquidated, or disputed. At the 341a meeting of creditors, the plaintiff, his ex-girlfriend, told the trustee that the debtor failed to schedule a Rolex watch worth $6,200 that she had given to him. Debtor admitted that he had a Rolex watch; although he sold the watch the plaintiff gave him and bought another one.
Ex-girlfriend filed a complaint to challenge discharge. At the trial of the plaintiff’s discharge challenge, the court found that the car was a 1970 Chevrolet Chevelle SS, which the debtor bought in 2005 for $33,433, a collector’s item. He said he overpaid for it and that it needed substantial repairs. An estimate from his neighbor, who owned a body shop, said it would cost $16,721 to repair. The plaintiff produced more than $17,000 in receipts for payments made to the body shop, and the debtor admitted that his parents paid about $23,000 to repair the car. The plaintiff’s appraiser said the car was worth $27,300. Plaintiff also proved that the debtor had $1,840 in his checking account when he filed for bankruptcy.
The bankruptcy court denied the debtor’s discharge pursuant to Section 727(a)(4), finding that he intentionally and with fraudulent intent omitted and undervalued assets on Schedule B. “The Rolex watch was the most serious omission. The debtor proffered no legitimate excuse for his failure to list the watch on Schedule B,” the court said. “Although the watch may not have been worth as much as what the debtor paid for, it was not worthless... The debtor was obligated to disclose ownership of the Rolex watch on Schedule B, but he did not, unilaterally making the determination that it had no value. This was not his decision to make.” The court further found that the inaccurate values that debtor assigned to the car and his bank account demonstrated a reckless disregard for the truth of his financial affairs.
This case reminds me of a Chapter 7 case filed by the ex-fiancée of client. In that case, I was retained as creditor to object to the discharge of ex-fiancée’s case. According to client, he gave debtor a diamond ring worth $15,000 and he wanted the ring back. Fiancée’s schedule B did not list the diamond ring. At the 341a meeting I asked debtor if she recalled receiving a diamond ring worth $15,000 from client. She testified that she did receive a diamond ring but now claims it as her own because it was gifted to her. Needless to say, trustee told her to give the diamond ring back to him because the diamond ring was now property of the bankruptcy estate because there was no applicable exemption for it. So be forewarned, if you declare bankruptcy; make sure gifts from ex-girlfriends are declared.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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